Computer Telephony's Time is Near

With improvements in IP technology and increased interest from consumers, computer telephony products and services appear poised for a big break into the mainstream market. What will that mean for state and local governments?

Twelve years ago, AT&T conducted a survey to determine whether cellular phones would ever catch on in the United States. The result? The survey found that, overwhelmingly, people and telecom companies believed the wireless gadgets would never succeed in the marketplace. The audio quality simply wasn't good enough.

Today, it's obvious how wrong that survey was. Cellular phones have reached the saturation point within the telecommunications marketplace because, as it turns out, when given the convenience of portability, audio quality suddenly wasn't all that important after all.

Now, it appears history may be ready to repeat itself. Computer telephony -- the practice of transferring voice and/or data over the Internet -- is on the verge of busting into the mainstream much like cellular phones have over the last five years, and what telephony products may lack in sound quality they are more than making up for in price and convenience.

Since telephony products and services are so new, what effect they will have on state and local governments largely remains to be seen. But one thing is clear: Many of the Internet telephony products and services currently benefiting consumers and businesses could easily benefit state and local governments as well, and the industry's rapid growth may mean those benefits are not as far from reality as they may seem.

A Brief History

The early days of Internet telephony were far from glamorous. For one thing, making a call over the Internet required both parties to sit at a computer while logged on. Sound cards, which were hooked up to a microphone and speakers, had to be installed on both computers. Finally, a software package was needed, and most systems required both parties to use the same software package. Then, as calls were broken into tiny digital packets and sent out over the Internet, they became fragmented. The receiver of the call often struggled to decipher a jumbled mess of words.

Later, it became possible to initiate a call from a computer and have it terminate at a regular phone, so an Internet-savvy person could call grandma, and grandma could answer the phone just as she would a regular call.

Today, phone-to-phone Internet calls can be routed over the Internet without involving computers at all. A calling card is used to dial up a telephony service provider, which then connects the call with Internet Protocol (IP).

The big payoff to any kind of Internet telephony, of course, lies in the price. Since calls travel over the Internet, which does not currently require long-distance tolls, the only cost to complete an Internet call involves the portion that travels from the caller to the Internet, and from the Internet to the call recipient on the other end. What that translates to are rates an average of 30 percent lower than standard long-distance services, with competition among start-up telephony providers pushing those rates even lower. In March, for example, I-Link Inc. unveiled a 4.9-cents-a-minute rate for calls between six major metropolitan areas in the west. Meanwhile, IDT offered 5-cent rates, and Qwest Communications revealed a 7.5-cent charge. At those rates, people, businesses and even government agencies that make numerous long-distance calls can begin to see savings rack up immediately.

The cheap cost of Internet telephony has caused such a stir among consumers lately that even telecom giants like AT&T and Sprint are beginning to take notice. While studies conducted in 1996 proclaimed Internet telephony would never threaten the large long-distance operators, improvements in telephony products and increases in the number of companies offering telephony services seem to have suddenly changed all that. A recent report from British telecommunications strategy consultant Analysys predicted that telephone business across the Internet will take 36 percent of the international call market by 2003.

However, big operators are not standing by as their traditional markets are attacked. In early April, primarily in response to telco concerns, the Federal Communications Commission agreed to take a look at Internet telephony issues and report back to Congress on whether telephony providers should be required to pay the same fees the telcos pay. Since the lack of regulation is the main reason why calls can be offered so cheaply, the whole future of Internet telephony appeared to be at stake. But the FCC decided against designating telephony providers as long-distance carriers, thereby excluding them from paying regulatory fees.

"For now, the recommendation is not to regulate Internet telephony, but it's still an open issue," said Lior Haramaty, vice president of technical marketing at VocalTec. "The good news is we hear government officials saying again and again that we can't use old rules for new technologies."

Since they couldn't beat them, many of the big telecom companies have decided to join telephony providers. AT&T has plans for what it calls its WorldNet Voice Service, an Internet-based long-distance service that will offer fees of 7.5 to 9 cents per minute from selected cities. MCI says it also has an Internet telephony offering in the works. However, companies like that "won't be rolling out Internet telephony technology ... until they have to," said Philip Lakelin of Analysys.

What it Means to SLGs

For state and local government, computer telephony means new opportunities to save money. In addition to cheaper long-distance bills, there are several telephony tools now available that could potentially help state and local governments in other ways. For example, several companies are making products that use the Internet to enable realtime virtual conferences. These conferences allow multiple users to view and edit a document together, all while discussing it at the cheap long-distance rates.

"Just by integrating IP voice and multimedia communications, officials would definitely reduce their telecommunications expenses and increase efficiency by reducing nonessential travel," said Haramaty, whose company makes one such product, called Atrium.

Bryan Katz, general manager for IP business applications at Lucent Technologies, said some school districts are beginning to use his company's version of the IP conferencing service, called MMCX. "The Methuen School District near Boston is using MMCX to compose their agendas," Katz said. "Someone posts a typed-up agenda, and the administrators can all add or delete items together online. They've found it to be much easier than calling everyone."

Students in that school district are also using MMCX to collaborate on
academic projects, and school administrators have discussed conducting future Parent/Teacher Association meetings with the service.

Another area where state and local governments could benefit from telephony services is in large data transfers. "IP is really much better for handling data than standard phone lines, which were designed for voice," said Steve Ingish, spokesperson for Level 3 Communications, which plans to begin offering Internet telephony services this fall. "IP has a higher level of security and higher speed. We estimate that a 650 megabyte CD-ROM of information could be sent across country in a matter of seconds and at a tenth of the cost, so for agencies that are very data sensitive, IP would be ideal."

Other telephony products allow users to click on a button while looking at a Web site to automatically connect to that entity via IP. The user can then ask a question or order something while saving both parties money and without having to log-off and pick up the telephone. "It makes it a lot easier for people who are hunting for information to connect with the right people," said Katz. "I imagine that area will be growing for agencies whose constituents are using the Internet."

The Future

While some say the Internet is not ready for the demands telephony will place on it, the industry looks ready for rapid growth, nonetheless. An International Data Corp. study estimates use of the Net to transmit voice calls internationally will grow from a $600 million business in 1997 to a $20.5 billion business by the year 2002. For domestic calls, revenues are predicted to reach $3.9 billion in 2002, up from $100 million in 1997.

VocalTec's Haramaty predicts the audio quality will continue to improve, leaving very few obstacles for Internet telephony. "The feedback from the users is that the audio is better than cellular, but not as good a regular phone," he said. "But soon we'll have audio quality that is better than the regular phones. The only limit is the bandwidth."

Ingish of Level 3 agreed. "Voice over the Internet is not currently ready for prime time due to the voice quality problems," he said, "but there are hundreds of people working to solve that problem right now. It's just a matter of time."